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DEVELOPMENTS IN INDIA’S CAPITAL MARKETS

India’s improving
macroeconomic
fundamentals, greater
integration with the world
economy, increasing
corporate profitability and
competitiveness is becoming
apparent through the
developments in its capital
market.

The likely benefits of


investing in a growing
economy have inspired the
overseas investors to invest in Indian markets. That is specifically so with the
Foreign Institutional Investors (FIIs) i.e. pension funds, mutual funds, investment
trusts, asset management companies, nominee companies and institutional
portfolio managers who have been investing heavily in the country’s capital
markets. The country’s capital market registered a net inflow of US$ 7.97 billion
from FIIs in 2006 up from US$ 0.7 billion in 2002. The rank of FIIs registered with
the market regulator Securities and Exchange Board of India (“SEBI”) have
burgeoned to 1,000 from 488 two years ago.

This along with larger participation of domestic investors resulted into a sharp
upward movement of Sensex, the benchmark index of Bombay Stock Exchange in
India’s commercial capital Mumbai. The 21-year-old Sensex that took 10 years to
climb from 1,000 points (in 1990) to touch 6,000 points (in 2000) rallied to the
10,000 mark in February, 2006. Sensex that yield a spectacular return of 48.06
per cent in 2006 maintained its upward journey in 2007 also and touched the
15000 mark in the month of July.

The capital market in India is experiencing the next bullish run triggered by the 50
basis point rate cut by the US Fed in mid September. The rate cut considerably
eased the liquidity situation which resulted in global investors pumping in billions
of dollars in growth markets like India.
India Sensex Journey

25000

20000

15000

10000

5000

0
3/30/1992

3/30/1993

3/30/1994

3/30/1995

3/30/1996

3/30/1997

3/30/1998

3/30/1999

3/30/2000

3/30/2001

3/30/2002

3/30/2003

3/30/2004

3/30/2005

3/30/2006

3/30/2007
In the 10 months up to October, FII flows have been equivalent to a little over a
quarter of the total foreign portfolio that’s entered Indian equities in the past 14
years (since the FIIs first stepped in India in 1993). Boosted by robust flows from
foreign institutional investors of US $ 7 billion between September 19 and
October 11, the benchmark index pole vaulted from 15,500 to close to 18,850, a
jump of 22 per cent in just 16 trading sessions. The unprecedented 2000 point
increase of the index in merely two weeks generated worries about a possible
market bubble. Sensex crossed its 20,000 marks on 29th of October and the
surge is still continuing.

Amidst all these buoyant market movements, there have been apparent efforts
from the market regulator to protect the interest of the investors. A slew of
proactive capital market regulation by SEBI has ensured the integrity of Indian
markets and this has certainly been a major factor underpinning investor
confidence.

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